Tech Startup Ecosystems Missing Out On Diversity

The lack of women in a progressive and disruptive sector like the startup tech world is, unfortunately, still a topic for discussion in 2016.

Women are making a lot of headlines lately. There’s one running for U.S. President. Their numbers in political positions are on the rise. More women are also graduating from college and university than men.

But a huge gender diversity gap persists, especially in tech startup ecosystems. While articles — see here and here — boast that female-founded startups in the U.S. have increased to 18% in 2014 from 9% in 2009, that number is still objectively deplorable.

The Business Case

This should be a huge disappointment for the startup tech industry given the growing body of research showing that gender diversity isn’t just the right thing to do — it can boost profits for companies and investors alike. In fact, Bloomberg recently ran a backtest and discovered a gender-focused investment strategy would beat the S&P 500 by 141% over the past 10 years.

The reasoning behind findings like these is fairly intuitive. Teams with different backgrounds tend to spot different risks and different opportunities. Products are bought by women as well as men, so a company whose decision-makers reflect its customers is better placed to understand them. And an investor who only backs founders from familiar networks is, by definition, missing deals that others can see.

So why would an industry known for game-changing innovation still lag when it comes to gender diversity.

Where the Gaps Are

To explore this, we sorted through some of the numbers and found that women in the tech workforce still account for a meagre 30%. When looking at CEO positions in the top 100 tech firms, the numbers are worse. And for the funding sector, the low percentage of female VCs and disparities in funding is, frankly, embarrassing.

Our coverage also includes profiles of a few women who are breaking through barriers, including Sonia Strimban of MaRS and Shopify’s Julie Hache.

Our Survey

Lastly, we’re conducted our own survey for women in tech — on the site but also across our social media channels — to get a better sense of how they’re faring when it comes to treatment in the workplace and opportunities for advancement.

Here’s what our respondents said:

https://twitter.com/TechPortfolio/status/745289461274021888

How the Numbers Moved After 2016

The funding side of the gap proved especially slow to close. In 2018, U.S. startups founded only by women raised $2.88 billion, according to PitchBook and All Raise data reported by Fortune. That was 2.2% of the $130 billion in venture capital invested that year, the same share Fortune had reported for 2017. All-male founding teams received 76%.

In Canada, the federal government’s 2018 budget cited a MaRS and PricewaterhouseCoopers estimate that only 12 per cent of all venture capital partners were women, and that only 30 per cent of Canadian venture capital firms had a female partner. The same budget launched a Women Entrepreneurship Strategy, including $1.4 billion in new financing for women entrepreneurs through the Business Development Bank of Canada.

The investor side has improved, but slowly. All Raise, a non-profit co-founded by investor Aileen Lee to accelerate success for women in the tech ecosystem, reports that 17% of decision makers at U.S.-based venture capital firms with more than $50 million are women, citing PitchBook data from 2023. It also reports that 62% of U.S. VC firms don’t have any female partners, based on its own data as of 2022.

What It Means for the Industry

Those figures suggest the question TechPortfolio asked in 2016 is still open. The share of women at the top of startups and venture firms has moved, but nowhere near as fast as the research on the business case would suggest it should.

For founders, the practical steps are the ones within their control: hire from outside your existing network, look at who’s on your cap table and your board, and track the numbers over time. For investors, the opportunity is the one Bloomberg’s backtest pointed to. If most of the industry is overlooking a group of strong founders, the firms that don’t overlook them have an edge.